China Tower, a Chinese state-owned wireless infrastructure operator, has filed for an initial public offering that will be the biggest globally this year and the largest IPO since Postal Savings Bank of China raised $7.6 billion in 2016. According to exchange filings, shares in China Tower were priced between HK$1.26 and HK$1.58 and will begin trading on August 8, 2018.
The timing of this IPO is weighing on risk appetite as the Hang Seng has slumped 15% from its January highs, the yuan has significantly depreciated against the USD since May, and Sino-US tensions are escalating with a trade deal seeming some ways off.
Given these circumstances, China Tower has encountered a lukewarm response to its IPO and priced itself at the low end of the marketed range (HK$1.26, raising $6.9bn in contrast to the desired $10bn).
In comparison to Ping An Good Doctor, which held its IPO in April and was 650 times oversubscribed, China Tower was only just oversubscribed, illustrating precisely how much investor enthusiasm has been dented by the geopolitical and economic events that have unfolded throughout 2018.
China Tower was formed in 2015 by combining the transmission facility assets of China Mobile, China Unicom, and China Telecom in a bid to reform the nation’s state-dominated wireless industry. The company is the world’s largest owner of telecom tower infrastructure, as per the prospectus.
State-backed China Mobile, the world’s largest wireless carrier, owns a 38% in China Tower, along with China Unicom and China Telecom, each with stakes of about 28%. China Reform Holdings, a state-owned investment fund, holds the remaining 6%. Other than being shareholders, the three carriers also pay leasing fees to use China Tower’s facilities.
China's tech sector, under the government initiatives of “Internet Plus”, “Made in China 2025”, and “Outline on the National Information Technology Development Strategy”, is emerging as an innovation and technology powerhouse. These blueprints set targets for a fourth industrial revolution in China driven by information technology, artificial intelligence, and robotics with the aim of being globally competitive and dominant in all these sectors.
China Tower will be integral to achieving the nation's dominance in many of these areas, which will rely on the high speed 5G wireless network rollout.
According to the prospectus, the company plans to use 60% of the IPO proceeds for capital expenditure plans primarily relating to China’s 5G rollout; this includes both upgrading old towers and building new towers.
Another 30% will go toward repaying bank loans, and the remaining 10% will be put aside for working capital and corporate purposes.